How To Get Started With Optimal Pricing

When you consider the time and effort that goes into setting your pricing — and the risks of getting it wrong — it makes sense to do everything possible to start with optimal pricing.

Setting a price that’s too high or too low has real consequences. If your price is too high, you don’t sell as many products as you projected, or your margin suffers. Customers may still be willing to purchase the product, and it may fit a need, but it doesn’t have the value you originally thought. This leads to heavy discounting.

It’s more difficult to know whether your price is too low, because customers won’t tell you. In this case, no news is not necessarily good news. If you’re not getting feedback from the sales team and customers that some think your price is too high, you probably don’t have optimal pricing.

In the event of pricing too high or too low, the product owners have several corrective options available: tweaking the product, pricing, bundling or packaging.

How long it takes to correct this problem depends on the product, market and industry. Companies usually get quarterly reports, and must meet quarterly and annual projections. Generally, it takes one or two quarters to get the sales data back and re-strategize, but that depends on the product value: A simple product that costs $100 takes less time than a complex configured product that costs $100,000.

Creating an optimal pricing range for a new product starts with determining the type of product you’re pricing. Are you launching a new product to replace an existing product? Is it a “me too” product that copies a competitor?

Next, you need to determine the pricing strategy, which depends on the product type. If a company is just copying a competitor, there’s not much to be done when setting the price range. But if you’re launching a new product or solving a new challenge, you have the option to focus on a value-selling strategy when creating the price range.

From there, pricing optimization software allows you to use competitive data to determine need and analyze market trends, historical data and segmentation — bringing you closer and closer to optimal pricing range.

No matter what, the time it takes to identify and correct pricing errors is time during which your sales are likely to suffer. So it’s best to get the price right from the outset.